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The Causes of Fraud in the Financial Crisis of 2007 to 2009.
- Source :
- American Sociological Review; Aug2016, Vol. 81 Issue 4, p617-643, 27p, 1 Diagram, 8 Charts
- Publication Year :
- 2016
-
Abstract
- The financial crisis of 2007 to 2009 was marked by widespread fraud in the mortgage securitization industry. Most of the largest mortgage originators and mortgage-backed securities issuers and underwriters have been implicated in regulatory settlements, and many have paid multibillion-dollar penalties. This article seeks to explain why this behavior became so pervasive. We evaluate predominant theories of white-collar crime, finding that theories emphasizing deregulation or technical opacity identify only necessary, not sufficient, conditions. Our argument focuses instead on changes in competitive conditions and firms’ positions within and across markets. As the supply of mortgages began to decline around 2003, mortgage originators lowered credit standards and engaged in predatory lending to shore up profits. In turn, vertically integrated mortgage-backed securities issuers and underwriters committed securities fraud to conceal this malfeasance and enhance the value of other financial products. Our results challenge several existing accounts of how widespread the fraud should have been and, given the systemic crimes that occurred, which financial institutions were the most likely to commit fraud. We consider the implications of our results for regulations that were based on some of these models. We also discuss the overlooked importance of illegal behavior for the sociology of markets. [ABSTRACT FROM AUTHOR]
- Subjects :
- MORTGAGE fraud
GLOBAL Financial Crisis, 2008-2009
MORTGAGE-backed securities
FINES (Penalties)
CREDIT
SOCIOLOGICAL jurisprudence
MORTGAGE underwriting standards
SECURITIES fraud
CORRUPTION
HISTORY
TWENTY-first century
STANDARDS
REAL property
BANKING industry
CRIME
ECONOMICS
ENDOWMENTS
FRAUD
INDUSTRIES
MULTIVARIATE analysis
REGRESSION analysis
RESEARCH funding
SOCIAL security
SOCIOLOGY
WHITE collar workers
ELIGIBILITY (Social aspects)
Subjects
Details
- Language :
- English
- ISSN :
- 00031224
- Volume :
- 81
- Issue :
- 4
- Database :
- Complementary Index
- Journal :
- American Sociological Review
- Publication Type :
- Academic Journal
- Accession number :
- 117099159
- Full Text :
- https://doi.org/10.1177/0003122416645594